Frontier lands $75 million loan
Struggling carrier's chances of survival climb with lifeline
By Chris Walsh, Rocky Mountain News (Contact)
Published July 25, 2008 at 9:38 a.m.
Updated July 25, 2008 at 11:43 p.m.
Will new financing help Frontier Airlines sell more tickets?
Struggling Frontier Airlines has cemented a deal to receive $75 million in loans and potentially sell a majority stake of its business, a significant financial lifeline that greatly increases the company's chances of emerging from Chapter 11.
Under the agreement, announced Friday morning, Washington, D.C.- based private investment firm Perseus LLC will provide Frontier with loans as the airline heads into the slower fall season.
If the carrier meets certain financial and performance benchmarks, Perseus will provide another $25 million in financing as Frontier exits bankruptcy. The investment firm will then convert its $100 million in loans and investments into stock in the reorganized airline, amounting to a 79.9 percent majority stake.
Frontier said it hopes to emerge from bankruptcy by late spring.
"This makes me feel very good about going into the fall and weathering the things we need to weather," Sean
Menke, Frontier's chief executive officer, said in an interview Friday with members of the media.
The agreement, which must receive bankruptcy court approval, could help ensure that the Denver-based carrier is around for years to come. Still, Frontier left the door open for more job and flight cuts, saying it will continue its intense focus on driving down costs.
"I'd put the odds that (Frontier) will survive at 75 percent to 80 percent," said Anthony Sabino, a law professor at St. John's University in New York. "Clearly, Perseus has determined that this is the time to buy Frontier, that this is as cheap as it's going to get, that it's a good investment, that they are confident the economy will rebound and that Frontier can fix its problems. For the sake of Frontier, its customers, vendors, passengers and employees, let's hope they're right."
Community and business leaders say the company's survival is key to the health of the local airline industry. Frontier ranks as the second-largest carrier at Denver International Airport, employs 4,788 workers here and has a loyal customer base.
"The community has a great deal of affection for that airline, and its employees have returned that in terms of providing great service," said Tom Clark, executive vice president of the Denver Metro Economic Development Corp. "This is good news for us."
The carrier has been hammered in recent months by rising fuel prices that have battered the entire industry. Frontier reported $38.5 million in losses from the time it filed bankruptcy in early April through the end of May,
As a result, the carrier has laid down plans to reduce its flights by 17 percent this fall, eliminate at least 569 jobs and ground planes.
It also has cut back in numerous ways, slashing roughly $60 million to $70 million in annual costs since it filed bankruptcy, Menke estimated. At the same time, the carrier is looking to boost revenues, in part by charging more for services and amenities that used to be free.
On Friday, for example, the company said it will start charging travelers to switch flights on the day of their travel and to make changes on days before the flight. It hopes to unroll an a la carte pricing structure this fall where consumers can pay a bare-bones base price for a flight or fork over more for things like seat assignments and frequent flier miles.
Employees - who, along with executives, took temporary pay cuts recently - cheered the financing agreement after suffering through months of bad news.
"I haven't even started work yet but my phone's been ringing off the hook since first thing this morning," John Stemmler, head of the Frontier Airline Pilots Association, said late Friday afternoon. "Other than the drop in fuel prices, it's really the first good news we've had in awhile. It really seems to be some justification of the temporarily sacrifices we've made."
Securing financing in the current environment, where fuel prices are battering airlines and banks are scaling back loans, is a feat in itself, observers said.
Frontier heralded the agreement as a vote of confidence in its business, but the company cautioned that it "is still a long process" to emerge from bankruptcy. The airline said it is still focusing on improving liquidity in other ways, and the company indicated it could make another announcement in coming weeks.
Frontier also will continue to find ways to reduce costs.
"We're not done with this," Menke said. "The competition is very stiff in the marketplace. Fuel is high and we need to continue to manage what is taking place."
Perseus said it has created an affiliate called Go Flip Go - Flip refers to Frontier's dolphin mascot - to handle the acquisition. The investment firm said it thinks Frontier can compete at DIA going forward despite heavy competition.
"Frontier, properly capitalized, ought to be able to succeed in that environment," said Brian Leitch, Perseus's Evergreen-based senior managing director, who has extensive experience in airline reorganizations. "Essentially, Frontier must demonstrate that it can be a successful airline. We believe it can be."
If the plan comes to fruition, current shareholders will be wiped out when Frontier issues new stock after it emerges from bankruptcy. Secured creditors would receive stock - rather than cash - for their claims, although amounts and terms have not been determined. The airline's creditor's committee will have the chance to weigh in on the plan in bankruptcy court.
"We don't know enough about the agreement yet," said Steve Stapleton, a Dallas-based lawyer with Cowles & Thompson who represents a creditor in Frontier's bankruptcy case. "We just don't know what the plan of reorganization is."
walshc@RockyMountainNews.com or 303-954-2744
Highlights of the agreement
* Under the deal, which must receive approval from bankruptcy court, Perseus will provide Frontier with a $75 million loan in two stages, starting with $40 million as early as August. Frontier will then be able to draw from the other $35 million in the fall.
* Perseus will give Frontier another $25 million in funding as it emerges from Chapter 11 if the carrier meets certain financial requirements.
* Perseus can then convert the $75 million in loans and $25 million in additional financing into Frontier stock, representing a 79.9 percent stake in the company.
What's next?
* Frontier will try to win bankruptcy court approval of the first part of the deal at an Aug. 5 hearing.
* The carrier also will meet with its creditor's committee to discuss the plan. The group's support will make it easier to push the plan through the bankruptcy court. The committee, however, could oppose the deal or offer an alternative.
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July 25, 2008
10:28 a.m.
Suggest removal
danirobi writes:
Woohoo!!!!
July 25, 2008
11:17 a.m.
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LingLingfor_prez writes:
Interesting.
July 25, 2008
12:12 p.m.
Suggest removal
sunflower writes:
Take that United! That goes to show that Marketing is King! Frontier's marketing campaign is cute and all, but there are Wall Street Investors in love with it so much that it compels them to buy the airline?..WoW! Now give the employees their pay cuts back, they deserve it.
July 25, 2008
12:45 p.m.
Suggest removal
jacka writes:
good job Frontier
July 25, 2008
1:15 p.m.
Suggest removal
fastnloose writes:
Fly Frontier Colorado,they represent our state very well.Everytime I fly Frontier,I hear first time Frontier customers tell me this is one of the best airlines they have flown on.Their employees rock,and are so friendly.
July 25, 2008
2:11 p.m.
Suggest removal
Squatch writes:
Best airline i have ever flown on.
July 25, 2008
2:13 p.m.
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woodwose writes:
I always try to fly Frontier over United. Go Frontier!
July 25, 2008
3:50 p.m.
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DC930 writes:
This just proves what we have all known - that Frontier is one of the best airlines in the USA. Perseus LLC stated in their press release that Frontier Airlines has the best coach product of any airline in the country - i.e. best service, best employees, etc. They even are calling this investment "Go Flip Go".
However - the folks at Perseus are no fools - a $100 million investment to obtain 80% control of one of the best airlines in the country - they know that just F9's owned aircraft fleet is worth much more than that. The opportunity to own Frontier Airlines for a mere $100 million is a no brainer.
The facts have always been known - Frontier got caught in this oil crisis - Jet A @ $4.00 a gallon just does not work.
And fact be known - the only reason that SouthWest continues to profit and expand, is that they are hedged at $56 bucks a barrel for oil. Take away SouthWest's fuel advantage - and they are in deep - their pilots and flight crews are the highest paid in the industry - as well as their management employees. If they had to compete with Frontier on an ASM cost basis without the fuel advantage - they would be dead in the water. GO FRONTIER !!!!
July 25, 2008
4:24 p.m.
Suggest removal
Gonzopozo writes:
"If the plan comes to fruition, current shareholders will be wiped out when Frontier issues new stock"
What does that mean? They have thousands of local stckholders!!
July 25, 2008
6:11 p.m.
Suggest removal
Vector049 writes:
Beats flying on cattle-car United any day. Walking beats United.
Jolly good show, Frontier!
July 25, 2008
6:46 p.m.
Suggest removal
ssqured writes:
DC9030 - Great to hear from someone who has "The Right Stuff".
If Southwest hadn't hedged their fuel they'd already be gone.
It's depressing to hear the public bemoaning they're being nickel
and dime'd to death when they haven't a clue what the current ASM
environment is for the airlines. It's not like the oil companies
spinning record profits while fuel keeps climbing. I realze their
margins are holding flat, however they're not exactly fighting
for their lives either.
Frontier is the best in the business ... I hope they survive. They've
always been Colorados' airline in loyalty and service. I wonder if
folks understand just how far 75 million goes in the airline biz
these days. Airline op costs have probably jumped more than in
any other sector.
GoFlipGo!
July 25, 2008
6:52 p.m.
Suggest removal
ssqured writes:
DC930 ... Sorry for the added '0' in your ID.
By the way, our company transportation department has been
directed to book travel ONLY on Frontier whenever the destinaton
is served by Frontier. Forgot to mention this. Good luck!
GoFlipGo!
July 25, 2008
6:59 p.m.
Suggest removal
DC930 writes:
Gonzopozo - Good question. Buying stock in an airline is worse than playing a $5 minimum BlackJack table in Vegas. History repeats itself - ask the shareholders/employees of Eastern, Braniff, PanAm or TWA. More recently shareholders/employees of United, US Air, North West or Delta. Closer to home - ask the retired/ex United employee that lives down the street why they now have to sell their home because United's employee stock program & retirement program have gone bust. Ask that nice young couple with 2 kids that work for Frontier who live around the corner how they are going to afford to keep their house with a 10% paycut, $4 gas to drive to DIA everyday & a possible layoff in September......
F9 stock was never been worth much more than $3/4 bucks a share at best. A BlackJack table at the MGM Grand would probably have been a much safer bet. Best airline stock tip I can give you - DON'T buy SouthWest.
July 25, 2008
7:13 p.m.
Suggest removal
DC930 writes:
ssquerd - THX, you are right on the mark !!!!. Glad your company is supporting F9. Frontier deserves the chance to continue to compete with UAL & SW here in DEN with their excellent employees and superior service..................
July 25, 2008
7:39 p.m.
Suggest removal
ssqured writes:
DC930 - Thanks. We're a 27-year-old Denver based distribution
company with branchs in COS, ALB, MCO, PDX, ORD and DFW.
So, like Frontier, we believe it makes sense to think of your base
first. I agree. If any airline deserves a chance, it's definately Frontier.
July 25, 2008
9:18 p.m.
Suggest removal
DC930 writes:
ssqured - My family and I have been flying the "New" Frontier now for over ten years. Never had a bad flight - employees are always professional, airplanes always spotless. Can't ask for more than that these days. Go Flip Go
July 25, 2008
10:10 p.m.
Suggest removal
SteveM writes:
Bravo and congrats, Frontier! We fly you exclusively and with good cheer. It's just too bad that the City and County of Denver along with the state of Colorado haven't done more for you! You are our local, hometown, low-cost hero! Thanks for constantly supplying me and my family with the best service, best flight attendants (or cabin safety professionals as some pilots call them), best seats (leather oh my), best inflight entertainment (movies and tv @ prices to swear by), best inflight goodies (snacks....Jack's Bunny Trail Mix is my favorite for sure) and your new salads and sandwiches are divine from another local company called Udi's! Keep up the great work and you'll go far in out flying United and the Wal-mart of the Sky aka Southwest Airlines.
July 26, 2008
10:55 a.m.
Suggest removal
cracker_trash writes:
I'm curious who is making these decisions. If the stockholders are the owners, why would they approve devaluing their stock? Frontier has a price to book of 0.06. Seems a stockholder would rather liquidate Frontier than be fleeced.
Frontier was in good financial condition and in contact with Perceus before going bankrupt. This looks a little fishy.
July 26, 2008
noon
Suggest removal
Rick writes:
To be clear, the value of the stock owned by current stockholders goes to zero if this deal is approved by the bankruptcy court. I'm not sure what all the celebrating is about.
July 26, 2008
12:09 p.m.
Suggest removal
cracker_trash writes:
I'm wondering if this will pass the smell test. How much will Frontier management get if this deal goes through?
July 26, 2008
1:14 p.m.
Suggest removal
ssqured writes:
cracker_trash - Yes, the end game could be that Perceus picks up Frontier at a bargain price.
But, lets not forget that Perceus is not in the airline business and there is some risk downside
for them as well. Frontier and Perceus are in this together for one reason and one reason only.
The belief that Frontier can survive and be returned to profitability. Investors don't generally invest
to sell or own tomorrow. They generally invest for the long term return on their investment. Yes,
Perceus is 'securing' their investment, but they're also looking at the greater gain to be had by
returning Frontier to health and profitability.
At the moment, the entire industry is in turmoil and planes are being moth balled left and right.
Perceus certainly doesn't want to own a bunch of equipment there's no market for. Aluminum
scrap isn't going to cover their $75 million stake. It's win or lose and survivability. I'm betting on
Frontier.
The hallmarks of Colorado are the Broncos, the Rockies, 'that beer', the mountains and Frontier
Airlines. Losing Frontier would be just as economically devastating as losing any of the others.
GoFlipGo!
Don't vote for incumbents.
July 26, 2008
1:17 p.m.
Suggest removal
ssqured writes:
wtf happened there? Did the RMN network f@rt in midfeed?
July 26, 2008
1:51 p.m.
Suggest removal
cracker_trash writes:
ssqured, thanks for your condolences. As you might guess, I remain unswayed. Others will be dubious too. Calling Carl Icahn, put a light on this sweet sister deal born in a backroom.
July 29, 2008
12:49 p.m.
Suggest removal
Keno33 writes:
yep support a local company while that company burns all of its local shareholders! If Frontier really cared about this city they would have carved out something for the shareholders, but instead they take the easy route and just burn them all.
August 14, 2008
6:25 p.m.
Suggest removal
Reece1 writes:
Come on let's face it funny animals and Flip are not going to turn Frontier around. We need Menke to step up and take hard action, some that will cut jobs and hurt many to re-group and make a push at reorg and a foundation for a strong comeback. A solid exit plan that will be challenged but not broken again by rising fuel costs and increased expenses. I think Perseus has the potential to move the needle if they step in and start the ball rolling. The longer they sit on the "wings" the deeper the well gets. If Carl Icahn got involved a day would not go by without his pressure to shift the thought process to streamline the process and start to deliver some evidence of a meaningful turnaround. I fly Frontier and hate to see them in this position and hope they can recover but with Menke sitting on his hands and Perseus on the side lines I have my doubts.